Stocks moved lower Tuesday after a worse-than-expected inflation reading put investors in a cautious mood.
The Dow Jones industrial average struggled briefly into positive territory in midsession, then weakened to end the day down 62.84 points, or 0.6 percent, at 10,285.26.
The Dow’s sharp afternoon decline was triggered in large part by the unexpected sale of more than 24 million shares of energy giant Exxon Mobil.
Energy stocks had already been under pressure because crude-oil prices softened Tuesday, and the sale of the huge block of Exxon shares appeared to catalyze a downward trend for the broader market.
Shares of Dow component Exxon ended the day down $2.56, or 4.3 percent, at $56.30.
In the morning, traders focused on the government’s report on the producer price index for September. Wall Street had been expecting the report to be bad, because of the Hurricane Katrina-related surge in energy costs. But the report proved even worse than anticipated, particularly in the extent to which inflation has seeped into the price of food and crucial chemical feedstocks.
Automakers General Motors and Ford both declined, after a Merrill Lynch analyst downgraded both companies to “sell” from “neutral.” Based on revised, lower estimates of their future earnings, Merrill said, “both stocks appear overvalued” and will be “increasingly risky” holdings as the industry’s painful restructuring goes on.
At the same time, investors were cheered by stronger-than-expected third-quarter earnings from blue chips like IBM and Johnson & Johnson.
The result, market watchers said, was a market with no clear direction, and that very aimlessness served to amplify the unsettling effect of the unidentified owner’s dumping of $1.4 billion in Exxon shares.
As Hurricane Wilma shifted course and headed toward Florida, fears that the Gulf Coast’s energy infrastructure might face another destructive blow ebbed. In New York Mercantile Exchange trading, crude oil for November delivery fell $1.16, to $63.20 a barrel.
The Standard & Poor’s 500 index fell 11.96, or 1 percent, to 1178.14. The Russell 2000 index of smaller companies, historically sensitive to moves in the energy sector, slipped 8.01, or 1.3 percent, to 625.36.
The technology-heavy Nasdaq composite index slid 14.30, or 0.7 percent, to close at 2056.00. Tech stocks may be roiled Wednesday. After the market closed Tuesday, semiconductor maker Intel reported earnings that were a penny shy of expectations. But Motorola’s results, also disclosed after the bell, topped forecasts.
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The price of Treasury securities moved lower in the morning on the PPI’s indirect signal that more interest-rate increases probably lie in the future. But by the end of the day, said Nomura economist David Resler, Tuesday “wound up being another holding-pattern day just like yesterday.”
The benchmark 10-year Treasury bond fell 3/32, to yield 4.47 percent.
Big movers: Guidant shares tumbled $8.28, or 11 percent, to $64.10, after investors grew fearful that the company’s pending accord to be acquired for $25.4 billion by Johnson & Johnson might come unraveled.
The $76-a-share deal with Johnson & Johnson was signed last December and is still awaiting antitrust clearance. But now Guidant has come under regulatory scrutiny.
Three months ago, the federal Food and Drug Administration launched an investigation into whether the medical-device maker adequately disclosed the scope of problems associated with certain recalled medical devices.
“In light of these matters and their impact,” Johnson & Johnson’s chief financial officer told analysts Tuesday, “we are continuing to consider the alternatives under our merger agreement.”
Traders were left to guess whether Johnson & Johnson is mulling negotiation of a lower purchase price, or if it will simply try to walk away from the biggest acquisition in its 118-year history.
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